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CMS revisits ACO benchmarking

CMS issued a proposed rule on January 28, 2016 that would significantly overhaul benchmark calculations for Medicare Shared Savings Program Accountable Care Organizations (MSSP ACOs), which may increase the long-term attractiveness of the MSSP for high-performing ACOs.

In response to stakeholder criticism that CMS’s benchmarking approach undermined program sustainability, the rule proposes incorporating regional expenditures in connection with updating an ACO’s historical benchmark for second or subsequent three-year MSSP agreement periods, making the expenditure levels against which a particular ACO’s performance is measured more related to regional fee-for-service spending and less tied to the ACO’s historical expenditures. The new methodology would compare average expenditures in an ACO’s regional service area—determined by the counties of residence of the ACO’s beneficiaries—to the ACO’s average expenditures, giving this regional adjustment a 35% weight for the ACO’s second agreement period and a 70% weight for its third and subsequent agreement period. This could significantly impact benchmark rebasing calculations for many ACOs, as the median ACO market share is just 12 percent under the proposed approach for determining regional service areas, although for the rare ACO with major market share, the effects of the proposed rule would be more limited.

The original CMS guidance for updating an ACO’s benchmark produced an unfavorable model for successful ACOs in which over time the potential payments from shared losses were likely to far exceed the potential gains from shared savings. That is, ACOs that achieved rapid expenditure reductions in the initial performance years faced shifting goalposts in which they would need to continually achieve deeper and deeper expenditure reductions to continue to realize shared savings payments from CMS in subsequent performance years. But conversely, an ACO is subject to the possibility of sharing in losses by no later than the ACO’s seventh performance year, and if initially-successful ACOs experienced any ‘reversion to the mean’ in subsequent performance years, then those ACOs would be responsible for potentially significant payments for shared losses to CMS.

The June 2015 final rule sought to help remedy these unfavorable long-term incentives by essentially giving ACOs partial credit for the savings achieved in the preceding three-year agreement period when updating an ACO’s benchmark for the immediately subsequent agreement period. But the June 2015 final rule also indicated that CMS was keenly interested in incorporating regional expenditures into benchmark rebasing as a more comprehensive long-term solution, and foreshadowed that proposed rulemaking would follow.

While potentially quite beneficial to high-performing ACOs, the revised methodology would apply to benchmark rebasing in connection with the second participation agreement for most ACOs (e.g., in 2017 for those ACOs that began their MSSP participation in 2014), but the revised methodology would not apply to the earliest ACOs until the start of their third participation agreement in 2019.

Notably, the revised rebasing methodology would place increased pressure on ACOs with high beneficiary expenditures relative to their regions and patient populations. By no later than their seventh performance year, such ACOs will need to achieve savings against a benchmark heavily weighted by the expenditure levels of more efficient providers, or be subject to shared loss payments to CMS.

The proposed rule covers a host of minor topics as well, such as benchmark adjustments to account for added or eliminated ACO participants and an additional window for ACOs to transition to a two-sided risk model, which are summarized in a CMS fact sheet accompanying the proposed rule. CMS has posted various data sets to facilitate stakeholder modeling of the proposed changes to the benchmark rebasing methodology, and the comment period for the proposed rule closes March 28, 2016.